Oil industry, Obama at $4B standoff

To hear President Barack Obama and Democrats say it, taxpayers are subsidizing the oil industry to the tune of $4 billion a year.

The industry version: What subsidies?

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Whatever you call them, the oil industry subsidies or incentives are in the limelight as gasoline prices rise and politicians look for convenient targets.

“Right now, $4 billion of your tax dollars goes straight to the oil industry every year — $4 billion in subsidies that other companies don’t get,” Obama said during a speech in North Carolina earlier this month. “Now, keep in mind, these are some of the same companies that are making record profits every time you fill up your gas tank. We’re giving them extra billions of dollars on top of near-record profits that they’re already making.”

Jack Gerard, president of the American Petroleum Institute, doesn’t see it that way.

“Just because the president calls it a subsidy doesn’t make it one,” Gerard said. “Words really matter.”

But trying to decipher who is right when it comes to the oil and gas industry and subsidies within the Tax Code gets really wonky, really fast.

It’s true that the oil and gas industry doesn’t get a check from Uncle Sam each year, but some of the tax provisions the industry enjoys are financed by the federal government through the labyrinth of the American Tax Code.

Think of a subsidy as including anything that will incentivize behavior, like the deduction individuals get for contributing to charitable causes, or the write-offs business owners get for buying new equipment — ostensibly encouraging the company’s growth, efficacy and strengthening the economy.

“A subsidy can apply to any variety of government aid,” said Janet Milne, a professor and director of the Environmental Tax Policy Institute at the Vermont Law School. “You can have direct subsidies of grant programs, subsidies through direct spending programs, and then subsidies through the Tax Code.”

But in today’s charged political climate, the word subsidy is the sort of Molotov cocktail that gets tossed around to describe any provision that a particular party doesn’t like.

“People may not like the thinking, but ‘subsidy’ can have negative connotations,” Milne said. “It’s a really challenging question: What’s the best vocabulary to capture this idea?”

The nonpartisan Joint Committee on Taxation is considered the authority on tax legislation for both houses of Congress, but it’s the phrase of a LBJ-era Treasury assistant secretary that matters most.

Stanley Surrey introduced the phrase “tax expenditures” into the Internal Revenue Code lexicon to describe exemptions, deductions, credits and exclusions to the normal Tax Code. To Surry, the tax system included the structure to tax individual and corporate income and a second system of tax expenditures the government used to carry out financial assistance programs.